What is an emergency fund?
An emergency fund is a bank account with money set aside to pay for large, unexpected expenses, such as:
- Unforeseen medical expenses
- Home-appliance repair or replacement
- Major car fixes
- Unemployment
Why do I need an emergency fund?
Emergency funds create a financial buffer that can keep you afloat in a time of need without having to rely on credit cards or high-interest loans. It can be especially important to have an emergency fund if you have debt, because it can help you avoid borrowing more.
How much should I save?
If you’re starting out, try to set aside an amount that would cover an important bill, say $500. But keep working your way up. You’ll want to max out at about half a year’s worth of expenses. A good rule of thumb is to have enough to cover three to six months’ worth of living expenses. If you do lose your job, you could use the money to pay for necessities while you find a new one, or the funds could supplement your unemployment benefits. Having savings can get you out of many financial expenses. Put something away now, and build your fund over time.
Where do I put my emergency fund?
Ideally, you’d put your emergency fund into a savings account with a high interest rate and easy access. Because an emergency can strike at any time, having quick access is crucial. So, it shouldn’t be tied up in a long-term investment fund. But the account should be separate from the bank account you use daily, so you’re not tempted to dip into your reserves.
How do I build an emergency fund?
- Calculate the total that you want to save – Use a calculator to figure out your expenses for six months.
- Set a monthly savings goal – Instead of focusing on one large savings goal, focus on smaller, attainable monthly goals.
- Move money into your savings account automatically – Set up automatic savings from your checking, payroll direct deposit or online banking.
- Keep the change – Use mobile technology to take advantage of our Swipe2Save program. Each time you swipe your debit card the amount of your transaction will be rounded up and the extra amount is automatically transferred to a savings account.
- Assess and adjust contributions – Check in after a few months to see how much you’re saving, and adjust if needed.